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As the big card networks crack down on fraud and cyber attacks, we continue to hear two key questions: what is network tokenization and how can it help my merchants?
In short, network tokenization is a security solution that replaces a customer’s primary account number (PAN) with a unique, but completely unrelated token made up of a random string of characters. This token does not contain or reference the PAN in any way, which makes it useless to any bad actor who manages to steal it. That makes network tokens, and tokenization in general, an extremely effective way to protect consumers in card-not-present (CNP) environments.
A network token is created when a customer initiates a transaction and saves their payment method to their account for future use. The token is stored by the merchant’s technology partner, like NMI, in a token vault. When the customer makes future purchases with their saved card or when a recurring transaction is initiated by the merchant, that network token, along with any additional security data like 3DSecure, is sent to the acquirer for authorization in place of the PAN. Once the transaction reaches the card network in the middle of the authorization chain, the actual PAN is sent to the issuer for approval.
By locking the PAN with the card network for most of the authorization process, the number of vulnerable points at which a bad actor could steal the data — known as the attack vectors — is significantly reduced. This offers multiple benefits, including the two we’re going to focus on here:
- Increased authorization rates
- Better customer experiences with one-click checkout
Benefit 1: Network Tokens Increase Card-Not-Present Authorization Rates
Using network tokens boosts the chances of approval for card-not-present transactions. According to Mastercard, using their network tokens results in a 2.1% increase in authorization rates over transactions that send the customer’s PAN. Visa cites an even higher increase of 4.6%. These are very significant improvements, especially for businesses, like subscription services, that process a high volume of recurring transactions.
How It Works
Network tokens automatically improve authorization rates in three primary ways:
- Increased issuer trust
- Automatically updated card data
- Reduced data entry errors
Increased Issuer Trust: When a network token is initially requested for a customer’s PAN, the issuing bank authorizes the request, and the card network provides the token. The enhanced security, reduced fraud risk and the issuer’s direct involvement in the process all enable the issuer to place a higher level of trust in a transaction initiated with a network token. That higher confidence allows issuers to approve more transactions and helps minimize false-positive declines during issuer-side fraud screening.
Automatic Card Updating: When a credit card gets a new expiry date and CVV, the network automatically updates the corresponding network tokens. This eliminates declines caused by expired cards, which is especially important for businesses that rely on recurring billing. With automatic updates, businesses don’t need to ask customers to update their information, reducing interruptions in service and improving customer satisfaction.
Reduced Data Entry Errors: Network tokens replace the customer’s PAN and are securely stored for future transactions. This eliminates the risk of human error when entering card details, reducing the likelihood of transaction declines caused by typos.
Benefit 2: Network Tokens Enable One-Click Checkout & Improved Customer Experiences
Research from NMI shows that speed and convenience are the two most important factors driving consumer payment preferences, so it’s no surprise that one-click checkout is so popular. An Amazon-like checkout experience is now becoming a baseline expectation for online transactions. But storing customer card data to enable one-click checkout is risky; it increases a merchant’s Payment Card Industry (PCI) compliance burden and puts them at a heightened risk of liability for a data breach, which now costs almost $5 million on average according to IBM’s most recent numbers.
Network tokens offer an ideal solution for merchants that want to offer frictionless recurring payments or one-click checkout without taking on the risk or liability that comes with storing customer card data.
How It Works
Network tokens empower merchants to offer better one-click checkouts by keeping the customer’s PAN separated from the merchant’s systems and facilitating a faster, more frictionless checkout and payment. The tokens themselves are issued by the big card brands and are then stored elsewhere to be used for transactions (such as in the NMI Customer Token Vault).
Protecting Merchants From Customer Data Risks: Network tokens protect merchants just as much as they protect consumers. They allow merchants to enjoy all the benefits of one-click checkout without any of the security risks that come with storing or even accessing the customer’s PAN. By walling off card numbers, network tokens shift liability away from the merchant and towards the network.
If a merchant falls victim to a successful cyberattack, the bad guys cannot get away with a database full of customer PANs. This mitigates the potential damage and, in turn, minimizes the enormous costs of remediation. The network is fully responsible for securing the PAN, making one-click checkout and other card-on-file solutions virtually risk-free for merchants.
Eliminating Checkout Friction for the Customer: Network tokens allow for frictionless, one-click checkouts. They eliminate the need for customers to reenter their card details, which is the fundamental requirement that makes one-click checkout possible. On top of that base function, network tokens offer additional benefits that create a faster, more convenient transaction, including:
- Faster transaction approvals
- Reduced likelihood of triggering additional security steps, like 3DSecure
- Fewer false positive declines — one of the most frustrating experiences for any customer
How To Secure All Your Merchants’ Card Transactions
At NMI, the safety of our partners and their merchants is our number one priority. We offer a full line of security and fraud prevention tools designed to make it faster and easier for merchants to stop fraud in its tracks, meet PCI compliance standards and wall off customer data from bad actors. One of those tools is Customer Token Vault, a complete network tokenization solution that allows your merchants to enjoy lower fraud rates, higher authorization rates and all the benefits of card-on-file payments, without the risk of storing payment data themselves.
To find out more about Customer Token Vault and our complete suite of security tools, reach out to a member of our team today.
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